Brazil has a large and diversified economy that offers U.S. companies many opportunities to export their goods and services. As Brazil’s largest single trading partner, the United States enjoys a strong reputation in a variety of sectors. This report is one of a series that is published by the U.S. Commercial Service’s team of sector experts throughout the year. We believe that financial services offer U.S. companies an excellent opportunity to do business in Brazil.
Brazil's financial system is the largest in South America. As such, it is highly developed, efficient, and offers a wide range of services. Brazil’s venture capital and private equity is already a US$ 16 billion market.
If you do not see an opportunity for your product or service here, please check out our other reports and consider contacting us directly to find out how we can help you export to Brazil. The first step for many U.S. companies is to visit our Country Commercial Guide at www.focusbrazil.org.br/ccg. In it you will find a good overview of business in Brazil.
According to a guide published by the Fundação Getulio Vargas’ Center for Private Equity and Venture Capital Research (FGV/CEPE) 1st Brazilian Business Census on Private Equity and Venture Capital, the Private Equity/Venture Capital (PE/VC) industry has four types of participants:
- PE/VC organizations (Managing investment vehicles)
- Investment vehicles (normally referred as PE/VC funds)
- Investors and
- Portfolio companies.
Many of firms that receive PE/VC are innovation-intensive, though some investments are still in traditional industries, such as supermarkets, entertainment parks, and oil distribution ventures.
High growth companies constitute major targets for PE/VC investments. Such investments can take place at different stages of a company’s growth cycle. Venture Capital is the term employed when the investment occurs at an early stage in the company's development, a phase that requires an active monitoring and a participation of the firm’s management. Private equity, however, is used for investments in solid operating firms that have established a certain market position and revenue generation. This does not necessarily imply a lower degree of managerial involvement.
VC investments consist of three stages:
- Seed capital: Frequently involving a small capital investment for the development of a product, market tests or patent fillings.
- Start-up: Capital invested into firms at their structuring stage, usually during the first year. In this stage, “Angel Investors”, affluent individuals who provide capital for business start-ups, could invest. Also, new businesses could become established and sustainable during their start up phase within “Business Incubators”; or by
- Expansion: a capital investment to expand the activities of a firm that already markets its products.
PE investments take on the following forms at various stages:
- Acquisition finance: Capital used to finance growth through Mergers & Acquisitions (M&A);
- Management buyout/in: Capital used to finance the acquisition of a company by a team of existing or new managers seeking to gain control;
- Bridge finance: Injection made when a firm plans to carry out an Initial Public Offering (IPO) within a short period of time (i.e. two years);
- Turnaround: Investment in the financial and operational restructuring of distressed assets;
- Mezzanine: Investments in late stage companies by means of subordinated debt that is senior to equity; and - Later stage: Capital investment in firms that have stable growth rates and positive cash flow;
- Private investment in public equity (PIPE): A stage in its own right that involves purchasing the equity of publicly traded corporations.
By Patrick Levy